Kenanga adjusts SDP outlook, price to stay firm

PETALING JAYA: Kenanga Research has adjusted its financial year 2022 (FY22) to FY23 core earnings per share on Sime Darby Plantation Bhd (SDP) by 1% and 5%, respectively, on firm palm oil prices staying longer, but has maintained a “market perform” on the plantation stock with a target price of RM5.20.

The world’s supply of leading vegetable oils, palm and soybean is expected to pick up seasonally in the second half of calendar year 2022 (CY22), which in turn should exert some downward pressure on prices.

“However, palm oil prices are likely to stay relatively firm on the back of several supportive factors, namely, the tight worldwide edible oils and fat market, low palm oil inventories in China, India and Pakistan and the current high oil and gas prices,” it said in a note.

The research house has maintained SDP’S average crude palm oil price at RM4,000 per tonne for FY22 and RM3,500 for FY23, but is nudging up palm kernel prices by 18% and 8%, respectively.

A larger-than-expected dividend payout cannot be ruled out either for FY22, Kenanga Research said.

MIDF Research, which has a “buy” call on the company with a target price of RM5.50, believes palm oil demand will remain favourable due to uncertainties over the Russiaukraine prolonged war and subdued production outlook for soybean.

Maybank Investment Bank said the recent minimum wage hike in Malaysia is expected to increase SDP’S yearly cost by up to Rm90mil per annum. It has a “hold” call on the stock with a target price of RM4.97.

Public Investment Bank said the hike would result in a cost of between Rm80mil and Rm90mil based on 24,000 workers. It is “neutral” on the stock with a target price of RM4.60.